The increase in oil prices has created agrowing economic pressure in Nicaragua. The electric powerindustry, especially, has generated controversy, becauseelectricity prices have not kept pace with the costs ofproduction. The situation at the beginning of 2006 wasclearly unsustainable, and the entry of a new governmentprovided an opportunity to refresh the vision of the sector,and address the problems. The objective of this note is toprovide a balanced approach, taking into account both theshort-term and long-term prospects of the sector, togetherwith the lessons learned in similar situations. Thequestions facing the sector relate to its financialsituation, the legal framework, the patterns of use ofenergy in Nicaragua, access and coverage of electric power,and its fiscal impact. Possibly the most importantrecommendation is to attenuate the disagreements with thegovernment and seek areas of cooperation to improve theconditions of service. This should involve a quantificationof the financial losses, and an operational audit todetermine the status of implementation of their obligationsto agents, investors, and customers.
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